Modernizing Referral Strategies That Are Stuck in the Past

My firm recently completed a performance-and-capabilities assessment for a mid-sized community bank. We interviewed key stakeholders addressing various topics and they were unanimous on one point. Each said they would opt for electronic processing over visiting a branch.

The bank was feeling the effects of this sentiment. The marketing director told us that branch traffic had declined 50% over the past three years.

This institution has an extensive branch network and it was underperforming on all of the established penetration benchmarks.

Indeed, the retail bank was performing at a mere 10% of the annual referral goal. And the bank's own data underscored the problem: retail banking and wealth management were substantially misaligned. Moreover, the qualitative feedback confirmed this. The relationship between the two groups was brittle at best.

Retail shot back that the goals were set inordinately high creating poor morale and a feeling of surrender amid the ranks. Retail also charged that wealth management was continuously understaffed adversely affecting coverage, service and accessibility.

Each side invested an enormous amount of time and energy over the years attempting to make the situation more tenable, but to little avail.

As the years passed, something larger was happening. Consumers were revolting, demanding faster, more personalized, collaborative service at a lower cost. Both Wall Street and Main Street are littered with once successful businesses eviscerated seemingly overnight by innovative companies seizing opportunities.

Netflix put Blockbuster out of business. Book stores, newspapers, music stores, travel agencies and a host of other industries fell prey to "category killers."

Banks are certainly experiencing a similar shift in consumer patterns, particularly relative to retail branches. This shift in consumer preferences by no means suggests that banks should abandon lucrative cross-sell activities within the branches. However, it does highlight the need for modernizing the approach to cross-selling and the need for accepting shifting consumer demands.

While we understand the efficiency associated with capturing a greater share of wallet from existing customers, we also understand the inefficiencies of providing "coverage" to decentralized retail offices, often with considerable geographic dispersion, and a limited number of ideal/targeted clients.

We find the vast majority of our financial institution clients continue to approach the retail opportunity in virtually the same manner they used 30 years ago: Attend branch staff meetings; bring pizza or donuts; give a few sales ideas; provide coverage on a recurring schedule or by appointment; repeat the process, five, seven, 10 or more times depending upon how many branches you cover.

Your car becomes your office as you rack up windshield time and mileage reimbursements, all while navigating traffic, weather and juggling your cell phone and calendar.

To begin the shift away from the vaunted branches of yore, you may wish to contemplate the following strategies.

Many times goals are simply predicated on past performance, with an across-the-enterprise increase for the new year.

So the branch that provided 100 referrals now has a goal of 120, while the branch that produced 10 referrals now has a goal of 12.

Other common methods are to base the goal on branch deposits, number of qualified referrals, appointments, or revenue.

We recommend a more precise approach that encompasses many of the key metrics driving or hampering success. These metrics might include items such as: advisor tenure; number of branches covered; branch deposits; branch rating (if available); branch foot-traffic; home branch or satellite branch.

Consider an advisor with six months' tenure covering six branches with a total deposit base of $125 million. The branches she covers are small with limited foot traffic. Her "home office" is in a $50 million branch.

Compare this to an advisor with a seven-year tenure, three branches with total deposits of $250 million in a heavily populated area. His "home office" is in a $50 million branch.

The weighting process would adjust the branch (and advisor) goal downward for tenure in the first example and upward in the second illustration.

Likewise, the number of branches would be a disadvantage in the first scenario (based on creating an "ideal" number of branches).

Using a pure deposit methodology, the two $50 million "home branches" would have identical goals, yet the first advisor would be spending considerably more time away from that home office than her counterpart and has considerably less tenure.

Assigning a weighted value to each of these items and working backward from some reasonable expectation of production will enable you to arrive at a reasonable, objective gauge of the opportunity available at each individual branch.

This formula, being objective, does not penalize past success by simply applying the same increase of referrals or revenue to each branch.

It also provides the bank with a tool to use in reducing the number of branches covered by an advisor, as those who are not fully harvesting the opportunity will lose the branch.

This places management in a more favorable position than merely arbitrarily paring sales territories.

Further, it provides another tool for measuring the success of an advisor. In essence, the bank might have an advisor producing $500,000 of fees and commissions in a territory with $1 million of opportunity. Another advisor might produce $300,000 of revenue in a territory with $200,000 of opportunity.

Understanding this would go a long way toward how you manage, evaluate and reward these advisors.

Combine the branch goals with production expectations from their existing books, client referrals and outside business development to create the advisor's total production goal, thus linking branch production and "other production" together.

Of course, you may choose to eliminate the branch goals entirely, recognizing pressuring reluctant branch employees to refer business may be eating up valuable time advisors could be channeling toward other lucrative markets.

Take a new look at how you are conducting your wealth management business in retail branches and decide whether your ladder of success is leaning against the right wall.

Tom Kane is founder and CEO of KaneCarlton, a consulting firm in the wealth management industry.